Why Military Members Don’t Get Matching Contributions in the Thrift Savings Plan

The Thrift Savings Plan is a great investment opportunity for military service members and eligible civil service members working for the US government. The TSP offers the opportunity to save in a traditional or Roth retirement account, and while the TSP doesn’t offer too many investment options, it offers among the lowest cost investment funds you will find anywhere.

The Thrift Savings Plan is virtually identical for military members and civil service members, but there are some differences you should be aware of. The first is that they are actually housed under different plans. You can have a military TSP account and a civil service TSP account, but they will be separate accounts. You can be eligible for both accounts if you worked for one agency and then another, or even if you work for both at the same time. A good example of this would be a civil service worker who also serves in the Guard or Reserves. You cannot combine these accounts if you are still eligible to contribute to both of them. You can only combine them after you are no longer eligible to contribute to one of them. (Even then, you may not wish to combine your military TSP account if you have contributions that were made in a tax free zone).

Another big difference is that civil service members have an automatic agency matching contribution added to their account. In fact, matching contributions are automatic for new employees. As a general rule of thumb, military members do not have matching contributions. Let’s take a look at agency matching contributions, then dive into why military members don’t get them.

Thrift Savings Plan Matching Contributions

This chart shows how Thrift Savings Plan matching contributions are made for civil service employees who fall under the Federal Employee Retirement System (FERS). Federal employees under the Civil Service Retirement System (CSRS) system are not eligible for agency contributions to their Thrift Savings Plan account.

Civil Service members receive a matching TSP contribution.

As you can see from the chart above, civil service members get a 1% agency contribution regardless of whether or not they elect to defer any of their own pay. FERS Civil Service members will then receive a 1% match for the next 2% of their pay that they defer, for a total of 5% contribution (2% member deferral, 1% automatic agency contribution, and 2% match = 5%).

FERS Civil Service members receive 0.5% match for each of the next two percentage points of pay they defer, up to a total agency contribution of 5% (1% automatic contribution, plus up to 4% matching contribution).

Most Military Members Don’t Get Matching TSP Contributions

If you are in the military, you are probably wondering why you don’t get matching contributions. It’s not that military members can’t get them, it’s that you probably don’t. The secretary of each branch of the armed forces is authorized to allow matching contributions for servicemembers in critical specialties. These matching contributions are generally given as incentives to servicemembers who agree to serve 6 years on active duty in those specialties. According to Wikipedia, the last time this was available was the end of 2008 (for new recruits; so some military members may still be eligible for matching contributions).

How the matching contributions work. Matching contributions are only made to contributions from base pay, so any incentive pay, special duty pay, bonuses or other pay used to fund your Thrift Savings Plan won’t count toward your matching contributions. After that, the formula is similar to to the civil service formula, but with two notable differences: 1) there is no automatic contribution. You must make a contribution to be eligible to receive matching funds. 2) you are only eligible to receive 4% in matching contributions.

It works like this: Eligible servicemembers will receive a 100% match on their first 3% of contributions, and 50% match on the next 2% of their contributions, for a total of up to 4% matching contributions. This formula is similar to many civilian 401k plans.

Why Don’t All Military Members Get Matching Contributions?

I believe it is possible for the secretary responsible for each service to authorize matching TSP contributions for service members, however, these funds have to come out of personnel funds, which are limited each year by budgets mandated by Congress. In other words, they could do it, but they would have to cut funds elsewhere. The secretary of each service normally chooses not to so they can allocate those funds to other needs, such as paying military salaries, selective enlistment and reenlistment bonuses, retention pay, and more. Giving everyone a matching contribution would mean cutting force strength numbers, which would leave the services shorthanded.

How to Use This When Making Investment Decisions

You should look at all your options when trying to decide between investing in the TSP or another investment opportunity. In general, most military members should be eligible to participate in the Thrift Savings Plan and an IRA. Which is better? It depends on your situation. We covered this in more depth in the following article: comparing TSP and an IRA.

Bottom line: Don’t get caught up on whether or not you receive a matching contribution. It’s neither fair, no unfair. It just is. The important thing is to look at the opportunities available to you and take advantage of them. In my opinion, the Thrift Savings Plan rocks. It’s a great opportunity, with or without a matching contribution. Take advantage of it. You will happy with yourself 20 or 30 years from now when you see a 5 or 6 figure balance in your TSP account.

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Ryan Guina is the founder and editor of this site. He is a writer, small business owner, and entrepreneur. He served over 6 years on active duty in the USAF and is currently serving in the IL Air National Guard. He also writes about money management, small business, and career topics at Cash Money Life. You can also see his profile on Google.

Comments

Great info – I came here with the questions as to why military members don’t get automatic matching TSP contributions. I now have my answer! Agreed that an all-service matching contribution program would be very expensive, but it would be a great selling point for new recruits or those think about re-enlisting.

It would be a great selling point for new recruits, but I think that if the military ever goes to a program where the match TSP contributions for all members, then they would do it by reducing retirement benefits, either by reducing the multiplier for each year of service, or they would do away with it altogether. I don’t see how the military could afford to do both. Here are most recent proposed changes to military retirement plan benefits from the Defense Business Board. It’s not a pretty proposal for anyone serving under today’s generous retirement program!

Thanks for your comment. The article stated Agency matching for TSP participants was limited to FERS civil service members. However, each subsequent mention of civil service members did not state FERS. I have more clearly stated this so there is no confusion.

In the information provided in your article, I did not discover an answer to the question of why the Fed Govt does not pay the 1% into an automatic TSP account for military members. Since the tax-payer is the ultimate guarantor of all Fed govt retiree pensions, etc, this makes no sense. The tax-payer would put military members at the top of the list of employees that should receive any additional benefits; it seems absurd that civilian paper pushers receive this benefit and active duty military members deployed multiple times into combat zones and FOB assignments do not. Please do not use the reasoning that the commander would need to make cuts to force strength due to cost. Congress or executive branch could easily provide a program to match the civilian program w/o deducting from military budgets! Thank you

Pnlopea, I clearly stated that the Secretary of each branch of the service can authorize TSP matching contributions under certain circumstances, but the funds would come out of the overall budget and cuts would have to be made elsewhere. Could the law be changed? I’m sure it could. But with the military downsizing and cutting back on other benefits, that would be a tough sell. If this is something you feel strongly about, then I recommend contacting a military lobbyist group to see if they have plans to lobby for this change, or would consider it among their top priorities for military and veterans benefits. You could also contact your Congressional Representative in regard to sponsoring a bill that would provide funds for the military to provide matching contributions for all servicemembers.

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